Here's Why Your Startup Won't Get Funded The main challenge start-ups are facing on their investor pitches is developing a convincing narrative that will attract and persuade investors
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The startup scene is flourishing in Southeast Asia and funding hit a record high of $10.9 billion in 2018. The region is becoming an increasingly attractive market for foreign investors. So, how do you ensure that your startup gets a piece of the pie?
Developing a concise and compelling pitch deck is one of the high-value tasks that startups should prioritize.
Whether it is done properly can make all the difference between investors rushing to pull out their cheque books, or your business fizzling out before it has even begun to take flight.
The main challenge startups in Singapore are facing on their investor pitches is developing a convincing narrative that will attract and persuade investors.
Here are some common issues with pitch decks and how they can be resolved.
You Over-projected the Potential Market
If you are targeting the recruitment market valued at US$ 215.68 billion globally, you need to come to terms with the fact that it is likely you will not be able to capture the market.
Investors know this well and it is one of the first signs of a naive, inexperienced and overzealous founder.
Enter the total addressable market, serviceable available market and serviceable obtainable market, which offer your investors a practical metrics of the market you can possibly capture.
Investors are looking for attractively sized markets that imply good potential but with realistic metrics of customers.
These metrics have been largely popularised by Airbnb's pitch deck where concentric circles slowly scale down to show prudent estimates of market sizes.
In Asia, most startups that successfully raise funds decide to tackle their local market as a test bed.
Once they have gotten the initial traction in their local market, they plan ahead to expand into adjacent larger markets within Asia to acquire more users and market share.
It is perfectly fine if your first market is smaller as long as you can make a case to scale beyond its borders into more attractive markets.
Scalability is a big factor for investors, as it shows greater opportunities for return on investment while, at the same time, prudence in sizing your market also helps investors reduce their risk that you're over-projecting.
You Did Not Acknowledge the Competition
Turning up to the investor meeting saying that there is virtually no competition in your industry of choice is a red flag. Newer founders tend to be apprehensive when it comes to talking about more established competitors in their niche.
However, is your market or industry really worth pursuing if there is no competition?
Do not be afraid of what you are doing is not new. It is unlikely that your startup idea is completely original after all.
In fact, having competition convinces investors that they are making a less risky investment as they are investing in a business model with a proven track record.
A way to angle the pitch is to develop a case for an under-targeted market in your region.
For example, there are various industries that are extremely saturated in the West, and yet, are largely unexplored in Asia's emerging markets.
You Undersold Your Founding Team
Putting a name and designation under a headshot of your founders is not going to impress anyone unless they happen to be a household name.
The goal of introducing your team is to instill trust that your team is capable and driven.
Have any of them run successful companies before? Were the key people holding leadership roles their past corporate lives? Do they possess decades of experience?
Highlight these facts using headlines and logos of the companies they have invested in, helped or used to hail from to boost their clout.
Your Pitch is Unclear
If your slide looks like something similar to a PHD thesis, you've got a big problem.
Depending on whether you are sending out the presentation to your investor or presenting it in person, you will want to carefully manage the number of words and information on your pitch deck.
Unlike their Western counterparts, Asian founders have a tendency to try to overcompensate with too much information to justify their pitch. We seem to be less comfortable with selling.
In emerging technologies like blockchain, startups also commonly struggle to depict and explain certain business models that may appear to be more complex.
Here are some tips to achieve clarity in your pitch deck:
- Reduce the use of jargon
Unless your investor is from a similar industry, they may not appreciate your industry jargon.
- Use simple words and terms that lay people can understand: Your business model will then appear to be a lot less unfamiliar.
- Reference existing businesses that are similar
"Uber for X" or "Amazon for X" as a phrase has become a ubiquitous pitch that most founders use and for good reason.
It is easier to describe your business using an existing reference point than trying to explain it from scratch.
- Find similarities in popular models and using them to describe your own: Using a renowned reference helps investors quickly understand your business model.
- Shorten your headlines to seven words or less: Reduce your prose to the most salient bullet points and ensure that every slide has only one key message.
As most investors on average spend less than four minutes reviewing pitch decks, using clear and actionable headlines will aid in sealing the deal.
Your Pitch Deck is Not Optimised For your Funding Round
If you did all of the above and you are still failing, you might be pitching for the wrong round.
For new startups, chances are that you are going to be raising a Seed round, which usually entails a lower valuation and correspondingly lower expectations from investors in terms of traction numbers.
However, there are other various rounds of fundraising e.g. Series A, B, C and their respective investors looking for different factors of consideration.
Be sure that you are optimizing the details in your pitch for the right ones.
Seed Round: The success of these rounds typically depend more on the quality of the founding team; any early traction or validation and viability of the solution.
Series A: These rounds are a lot more number-focused where you should have already achieved product-market-fit and sometimes, profitability.
More funds from investors at this stage are essentially meant to catapult growth, extend your runway and test a few time-sensitive ideas you might have to grow the business.
Series B: By this stage, investors will assume you already have a proven model that makes money and is projected to grow exponentially.
Funds at this stage are typically used to expand across geographic markets and accelerate growth further.
Putting together a pitch deck can be a nerve-wrecking exercise for many new founders. A tip is to consistently think from the point-of-view of prospective investors to avoid missing out on key details in your presentation.